What is Schedule 13D?

The filing of Schedule 13D with the U.S. Securities and Exchange Commission (SEC) is mandatory for any individual or organization acquiring more than 5% of an equity share class of a firm. After the filer has acquired a 5% share, Schedule 13D must be submitted within ten days. Another name for Schedule 13D is a “beneficial ownership report.”

Understanding Schedule 13D

For a variety of reasons, investors may choose to purchase a large number of shares in a publicly traded corporation. These may be institutional investors thinking the stock is cheap, activist investors trying to force a hostile takeover, or disgruntled shareholders considering mounting a proxy fight to unseat management.

A person or group must file a Schedule 13D form with the SEC to report any acquisition of a substantial ownership interest in a corporation, defined as more than 5% of a voting class of the firm’s publicly traded shares. In certain circumstances, they may be allowed to utilize Schedule 13G, a less complicated form.

The public corporation and the exchange(s) on which the firm trades are informed of the new beneficial owner upon filing the disclosure with the SEC. The purpose of Schedule 13D is to inform the public about the identities of these shareholders and the reasons for their substantial ownership of the corporation. The purpose of the form is to alert present shareholders about potential changes in control, such as a hostile takeover or proxy contest, so they may vote and make investments with knowledge.

The new beneficial owner is the one who has to submit Schedule 13D. The individual or organization behind the transaction may be unknown to the target firm. The beneficial owner must submit Schedule 13D within ten days of purchasing the shares. Conditions for Scheduling 13D

The following are just a few of the things for which Schedule 13D requests pertinent information from the beneficial owner:

Item 1: Issuer and Security. This part inquires about the kind of securities bought and the name and location of the issuing business.

Item 2. The purchasers identify themselves in this part by providing information about their company, citizenship, and any prior five-year criminal convictions or civil lawsuit involvement.

Item 3: The source and quantity of funds or other factors. This section details the funding source, including any loans that may have been made.

Item 4: The transaction’s goal. Investors are warned about potential changes in control in this part of Schedule 13D. Beneficial owners must disclose, among other things, if they intend to combine, reorganize, or liquidate the issuer or any of its subsidiaries.

Item 5: Interest in Issuer Securities. Here, the beneficial owner indicates how many shares are being bought and what proportion of the company’s outstanding shares are acquired via this transaction.

Contracts, agreements, understandings, or connections about the issuer’s securities comprise Item 6. Any arrangement or connection the beneficial owner may have with anybody about the target company’s stocks should be disclosed. This might include joint ventures, finder’s fees, voting rights, loans, or option agreements.

Material to be filed as exhibits is item 7. These consist of copies of any written contracts about the securities that the beneficial owner has signed.

Extra Attention to Detail Notification of Significant Changes

The beneficial owners have two days to alter their Schedule 13D if any significant changes to the information are submitted. Any increase or reduction of at least 1% in the beneficial owner’s proportion of the securities owned constitutes a substantial change.

You may examine most Schedule 13D filings in the SEC’s EDGAR database. “S.C. 13D—General statement of acquisition of beneficial ownership” is how the database refers to Form 13D. Any modified version has the designation S.C. 13D/A.

Schedule 13D Example in the Real World

The media giant IAC/InterActiveCorp (IAC) acquired a significant portion of MGM Resorts International’s equity shares (MGM). On August 20, 2020, the resultant 13D was submitted to the SEC.

A section of MGM’s 13D filing is shown below:

The reporting person is identified as IAC/InterActiveCorp (section 1).

Section 7 states that 59,033,902 shares were acquired.

Based on the number of outstanding shares, the acquisition represented a 12% ownership stake in MGM (section 13).

Conclusion

• A person or organization must notify the Securities and Exchange Commission upon acquiring 5% or more of the voting shares of a firm.
• One of the inquiries made by Schedule 13D is about the intention behind the transaction—be it a takeover or merger.
• The beneficial owner is required to make changes to their Schedule 13D if their holdings fluctuate by 1% or more.